• Consumers in smaller cities spend most of their income on essential items, leaving room for increases in discretionary spending if incomes rise
• Consumption contributed to more than 60 per cent of Chinese growth in the first three quarters of 2019, but has been under pressure during the trade war

China’s retail sales have not yet shown signs of a rebound, but rising service consumption and the potential for a significant increase in spending in smaller cities as incomes rise could rapidly reshape the country’s consumption landscape, according to a report released on Tuesday.
Consumption, which contributed to more than 60 per cent of Chinese growth in the first three quarters of 2019, has been under constant pressure during the 18-month-long trade war.
But the results from JD Digits Research Institute, analysing spending habits based on data from JD.com, one of the country’s leading e-commerce platforms, painted an upbeat picture for consumer spending and supported the view expressed recently by Beijing officials that growth has been better than expected even before the phase one trade deal with the United States was announced.
That, in turn, reinforced the repeated message from the government that major economic stimulus it unnecessary to support stable growth next year.

Signs of a slowdown in spending triggered a debate on whether the country’s 300 million middle class consumers were “downgrading” their consumption to save money amid the economic slowdown due to fears about their job security and income.
Private consumption, which accounted for more than 60 per cent of Chinese growth in the first three quarters of 2019, has been under constant pressure during the 18-month-long trade war. Photo: EPAPrivate consumption, which accounted for more than 60 per cent of Chinese growth in the first three quarters of 2019, has been under constant pressure during the 18-month-long trade war. Photo: EPA
Private consumption, which accounted for more than 60 per cent of Chinese growth in the first three quarters of 2019, has been under constant pressure during the 18-month-long trade war. Photo: EPA
China’s retail sales have not yet shown signs of a rebound, but rising service consumption and the potential for a significant increase in spending in smaller cities as incomes rise could rapidly reshape the country’s consumption landscape, according to a report released on Tuesday.
Consumption, which contributed to more than 60 per cent of Chinese growth in the first three quarters of 2019, has been under constant pressure during the 18-month-long trade war.
But the results from JD Digits Research Institute, analysing spending habits based on data from JD.com, one of the country’s leading e-commerce platforms, painted an upbeat picture for consumer spending and supported the view expressed recently by Beijing officials that growth has been better than expected even before the phase one trade deal with the United States was announced.
That, in turn, reinforced the repeated message from the government that major economic stimulus it unnecessary to support stable growth next year.

Signs of a slowdown in spending triggered a debate on whether the country’s 300 million middle class consumers were “downgrading” their consumption to save money amid the economic slowdown due to fears about their job security and income.
“The downward pressure [on consumption] is obvious,” the report said, citing the slowdown in the three-month moving average of JD online sales growth, which is seen as a reflection of total national retail sales about eight months in advance. The three-month moving average has declined from around 50 per cent to around 20 per cent in October 2019.
The pressure was also evident in the divergence between spending on non-essential and staple goods like food and clothing. The proportion of discretionary goods bought dropped by several percentage points to about 56 per cent of total spending in the first 10 months of the year, according to the report.
JD Digits chief economist Shen Jianguang said the slowdown in consumer spending in the short term was due largely to consumers’ concerns about jobs and incomes amid uncertainties generated by the trade war. Long-term growth, however, would depend on what the government can do to assist in enlarging the size of the country’s middle class and in improving their income growth.
“Counter-cyclical measures should concentrate on stabilising employment, managing expectations [about the economic outlook] and reducing economic uncertainties, so that people’s consumption capability and willingness improve,” he said.
Unlike the large-scale consumer spending subsidies granted to consumers in the government’s response to the global financial crisis a decade ago, Shen suggested that Beijing should now focus on ways to increase spending on services like telecommunications, education, and medical care, and well as enacting measures to boost consumption in smaller cities.